Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / A firm's most recent sales are $1 million, and COGS are 60% of the sales
A firm's most recent sales are $1 million, and COGS are 60% of the sales. In terms of other expenses, the firm has incurred SG&A expenses worth $100,000, depreciation expenses worth $50,000 and interest expenses worth $50,000. The firm's dividend payout ratio is 40%. The tax rate is 25%. The firm has total liabilities worth $500,000 and total assets worth $1.5 million.
How much the firm has paid in dividends to its shareholders? What is the firm's ROE?
(please show work)
Computation of Dividend paid to Shareholders:
Dividend paid to Shareholders = Net Income * Dividend Payout Ratio
Here,
Net Income = (Sales - COGS - SG&A expenses - Depreciation - Interest Expenses) * (1 - Tax Rate)
= ($1,000,000 - 60%*$ 1,000,000 - $100,000 - $ 50,000 - $ 50,000) *(1- 0.25)
= $150,000
Dividend paid to Shareholders = $150,000*40% = $60,000
Computation of ROE:
ROE = Net Income/Total Equity
Here,
Total Equity = Total Assets - Total Liabilities = $1,500,000-$500,000 = $1,000,000
ROE = $150,000/$1000,000 = 15%
